Tesco has called on its suppliers to pass savings made from falling commodity prices on to consumers, claiming that it is critically important that savings translate into lower retail prices to ease financial pressures on shoppers.

In a keynote address at the prestigious City Food Lecture in London this week, Tesco chief executive Sir Terry Leahy (pictured) told an invited food industry audience that rising demand for discount goods underlined the need for lower prices for consumers.

“Commodity prices are down by over 50 per cent from their peak, while the price of oil is down by over US$100 – these lower prices need to be passed into the supply chain and fed on to consumers who are under growing financial pressure,” he said.

Sir Terry said that Tesco wanted to ensure that all its suppliers understood this and was “going to great lengths to speak to them about the pressures consumers are under”.

The Tesco chief executive argued that although the adjustment “would be difficult for some”, it was “critical if consumers are to be given what they need”.

As evidence of the demand for lower prices, Sir Terry claimed that the retailer was now Britain’s biggest discounter and said sales of Tesco’s discount and value ranges had increased by 65 per cent compared with a year ago.

He also delivered a robust defence of free market economics, claiming that agricultural subsidies were “too high”, reducing the efficiency of agriculture production and keeping food prices in protected markets “artificially high”.

But environmental concerns were also tackled in the speech and the Tesco chief claimed that government backing for biofuels had backfired, causing forests to be cleared and leaving “less land was available for other crops”.

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